Aperio webinar – ESG evaluation in 2022: scoring, standards and regulatory landscape

On Wednesday, February 23^rd 2022, Aperio Intelligence hosted a webinar to discuss the state of the ESG landscape with a focus on scoring, upcoming regulation, and the need for an adaptable approach to the evaluation of ESG factors.

The webinar was chaired by Scott Travis, Head of Aperio Intelligence’s ESG Services practice. Three external panelists joined to share their understanding and experience on the matter:

• Bob Dannhauser, Senior Advisor at Shift Project
• Dr. Anna Itkin, Co-founder and CEO of The Inceptery
• Tom Boova, Managing Partner of IFG Capital

Key Takeaways

The need for clarity in a diffuse and growing market (Bob Dannhauser)

• The growth in what is loosely defined as sustainably managed investment is staggering. Current estimates place the figure at some $35 trillion worldwide. That figure has increased 15% in the last two years and is up 55% in the last four years. These figures account for roughly 30% of all professionally managed assets in the world.
• In such a large market, there exists no taxonomy or agreed upon definitions that specify both to corporations and investors just exactly what investment along ESG lines encompasses.
• This lack of definition contributes to suspicions that it becomes a marketing or a public relations exercise subject to greenwashing. Upcoming legislation/regulatory action in both the EU and US will seek to curtail the greenwashing tendencies, and companies will need to address this risk.
• Efforts to define the space have resulted in a growing mix of data providers and credit ratings agencies designing products to assess the material impact of ESG factors. Estimates place this market at around $6-$7bn annually.
• Unlike credit ratings, there is a distinct lack of conformity in the ESG ratings market. A study from MIT placed the degree of correlation between credit ratings from agency to agency at roughly .99, or a nearly 1:1 agreement between metrics. ESG ratings, on the other hand, were found to have a correlation of .61 between them. This means there is little to no agreement between those scoring this space and evaluating how companies invest along ESG lines.

Opportunities in this period of growth and definition (Dr. Anna Itkin)

• To properly evaluate the financial implications of any ESG related subject, it is necessary to employ a holistic systems thinking approach to why or how a previously non material factor might be impactful.
• While there is little agreement from country to country on what sustainability means, this opacity is also driving technological innovation – and therefore, creating investment opportunities that are not solely driven by their environmental or social impact, but rather on the ability to incorporate positive impacts into a plainly profit focused strategy.
• In so many cases, the argument for considering roughly defined ESG factors is also a case for simply managing a business well. Considering local stakeholders, the priorities of a given jurisdiction and what a potential customer’s appetite for these factors might be are not strictly ESG ideas- they are management ideas.

Private market investors are motivated by the momentum in this space (Tom Boova)

• Even amongst those who do not come to sustainable investing from an altruistic viewpoint, the opportunities in the space dictate the need to be involved in it.
• Public markets may have less risk appetite than they intend, no matter how vocally dedicated they are to considering ESG factors.
• The scrutiny inspired by public attention to this space leads to investors considering ESG factors as a profit motive. Investors are not always looking for box ticking on sustainability criteria, but rather are looking to be good stewards – not only good stewards of clients’ money, but good citizens and community members because the public appetite demands it.
• In a modern setting, ignoring these issues is not feasible. Truths will come out, and there is no academic consensus that ESG factors contribute to any sort of drag on investment performance.
• Investors are looking for a way to fit ESG considerations into a macro strategy, yet also need to ensure compliance with an ever shifting landscape of regulations, taxonomies, frameworks and industry agreements.

For further information about Aperio Intelligence’s ESG offering, please contact scott.travis@aperio-intelligence.com